A new theory on capacity markets and the missing money.
On Wednesday May 7, FERC will host a conference in Washington, D.C. that might prove extraordinary. The commission staff promises not only to review the forward capacity markets now operating in New England and PJM—each a story unto itself—but also to discuss a new rate-making theory that has come virtually out of nowhere and which proposes to help solve the notorious “missing money” problem.
Fickle behavior by LSEs threatens to destabilize organized markets.
Dodging capacity payments might become an art form among load-serving entities and large electric consumers, as evidenced by Duquesne’s plan to exit PJM, as well as alternative market-designs proposed by large users. But such behaviors might only serve to disrupt organized markets and cause a return to full regulation.
Enforcement trends call for a proactive approach to complying with market rules.
Federal regulators have penalized wholesale energy market participants with fines ranging from $300 thousand to $300 million over the past two years. The magnitude of the penalties, along with uncertainty over how to effectively mitigate the risk of any civil action by regulators, has raised concern about how companies are approaching their regulatory obligations.
Southern Company named Ronnie Labrato vice president, internal auditing. FirstEnergy’s board of directors elected Gary R. Leidich executive vice president and president of FirstEnergy Generation, and Richard R. Grigg executive vice president and president of FirstEnergy Utilities. Exelon named Ian P. McLean to lead its finance and markets organization. And others...
U.S. utilities are gaining valuable lessons from technology developments abroad.
Structural and regulatory factors have allowed utilities in some countries to leapfrog America’s utility industry in terms of technology leadership. But U.S. utilities are learning valuable lessons from international advancements.
Emerging capacity auctions offer limited but valuable risk-management tools for asset owners.
Fast forward to today’s partially deregulated electric power markets. Wholesale electric energy often is traded in various central markets, as well as among individuals in bilateral transactions. Wholesale electric energy prices largely are deregulated, and clearly, over the past decade, market participants have become adept at routinely charging much more than their variable production costs. This “rent extraction,” as economists commonly call it, can take various forms, and while the mechanism for achieving it can be complicated, the evidence is quite clear that today’s wholesale electricity prices typically are higher than the variable costs of most or even all suppliers.
Why developers today are often kept waiting to get projects ok’d to connect to the grid.
Late last year FERC learned that the Midwest regional grid likely would require at least 40 years — until 2050 — simply to clear its backlog of proposed gen projects awaiting a completed interconnection agreement to certify their compatibility with the interstate power grid. But grid engineers would meet that date only by shortening the process and studying multiple projects simultaneously in clusters. To apply the process literally, studying one project at a time, as envisioned by current rules, the Midwest reportedly would need 300-plus years to clear its project queue.
ERCOT utilities approach CIP compliance from varying perspectives
As proposed by the North American Electric Reliability Corp., the new critical infrastructure protection (CIP) standards charge utilities with identifying their own critical assets and related cyber systems. This approach allows great flexibility for utilities to apply the CIP standards to their particular situations. This will help ensure that their efforts focus on securing critical assets, rather than on complying with an overly prescriptive set of mandates that might or might not yield a secure grid.
Utilities are gearing up for cyber security compliance. Will the standards prove worthy?
The NERC CIP standards represent an historic achievement. They include the first mandatory cyber security requirements of their kind to be imposed on a U.S. private-sector industry. Considering the scope and sensitivity of the grid-security issue, developing a set of enforceable standards inevitably would entail a complex and contentious process. From that perspective, NERC, FERC and the industry have made remarkable progress, and their efforts deserve accolades.
NERC’s new cyber security rules may minimize cost of compliance, but they leave utilities guessing on how to identify risks.
Liam Baker, vice president for regulatory affairs at US Power Generating, questions whether his company’s power plants and control systems in New York and Massachusetts must comply with the electric industry’s new mandatory standards for cyber security. Baker voiced his doubts in written comments he filed in October with FERC.